Life-changing Events

That sounded a bit confusing, didn't it? Let's straighten it up. Marriage is a time when the bride and the bridegroom receive plenty of gifts from relatives, friends and colleagues. Some gifts are in kind, some in cash. Usually, the friend circle pools its resources and asks the couple beforehand what they need or want. This is more so when the couple goes to live independently in a new home. They start from ground zero and need several items to run their household. The friends are more-than-willing to spend money on gifting such items.

Others - often distant relatives and old neighbours - prefer to gift cash, as they may not be in tune with what the couple likes. Most Indian families keep a good record of cash gifts received and total-up the amount received. The question is, what will be the tax impact of all these gifts received by the couple?

Well, currently as there is no gift tax in India, gifts that are received in kind are completely exempt from being taxed. Even cash gifts, if received from relatives, are tax-free. Under the Income Tax Act, any addition to your income (cash gifts, in this case) if received from a non-relative at the time of marriage, is also not considered for tax purposes. Hooray! This means that all gifts - both in cash and in kind - are tax-free in the hands of the individual if received at the time of marriage.

Transferring assets between a married couple may have tax implications. Under ordinary circumstances, ownership of an asset transferred to the spouse without any consideration in return, will have a bearing on taxes at a later stage. If the transferred asset generates an income, the spouse who received the asset will not be taxed. Rather, this income will be added to the income of the spouse who transferred the asset without expecting anything in return.

So any attempt to reduce one's own tax burden by transferring ownership of assets to the spouse will not work as at a later stage it can result in a tax liability anyway. Sounds depressing? Not if you read further...

The law provides that such an income will be added to the income of the spouse transferring the asset, if the couple was already married both at the time of transfer and at the time of earning this income. The word “both” is crucial here. Meeting only one of the conditions will not add to the income. So if you gifted your fiancee an income-generating asset before marrying her, and she made money out of it after marrying you, that income cannot be clubbed with your income. And to that extent, you're saved from the additional tax burden!

We won't make marriage a taxing topic any further by discussing the various sections and provisions...So rejoice and take her for that cruise you've been promising her since the time she was your !!